Italian home base dragging down sofa king Natuzzi

January 13, 2014 - 6:30:04 am

New Natuzzi’s easy chairs named Revive in a store in downtown Milan yesterday.

SANTERAMO IN COLLE, Italy: From this hilltop town on the heel of Italy’s boot, Pasquale Natuzzi has built an eponymous furniture company that is one of the country’s most global brands. It sells sofa beds from Dallas to New Delhi and is one of a handful of Italian companies listed on the New York Stock Exchange.

Yet today, Natuzzi’s home base is dragging it down. Best known for its brand Divani & Divani, the company hasn’t made a profit in six years. In the first nine months of 2013, it lost ¤38.7m, deepening year-on-year losses on a slight dip in sales to ¤328m.

Though it sells in 123 countries, and has factories in China, Romania and Brazil, Natuzzi says the main reason for his company’s woes is the high cost of making sleek sofas and armchairs at home.

The core of its production and half of its 6,500 worldwide employees are in Italy where high labour costs and strict employment laws make it hard for companies to keep up with more nimble competitors elsewhere.

It costs Natuzzi up to 10 times more to make a product in Italy than in its factory in China and although it has been proactive opening factories abroad is under pressure from Italian unions to keep jobs at home.

The result is that, as the recent economic downturns have hit Natuzzi’s key consumer markets of the US and Europe, the company hasn’t been able to adjust its cost base to compensate for the fall in consumer spending. “The orders we have are enough to employ 1,500 people, not our 3,200 (in Italy),” the 73-year-old Natuzzi, who is company chairman and chief executive officer, said in a recent interview in Milan where he was unveiling the new Revive armchair.

Late last year, Natuzzi agreed to a government-brokered plan that will allow the company to avoid laying off more than a thousand workers, while pledging ¤242m to breath new life into the company’s Italian operations.

Natuzzi’s predicament is just another chapter in Italy’s industrial decline. In the 1980s and 1990s, many Italian companies began exporting abroad helped by devaluations of the lira that allowed them to price lower than foreign rivals.

But that advantage was lost when Italy adopted the euro in 1999 - around the same time that European goods faced a flood of competition from low-cost rivals from China. Italy’s efforts to loosen its labour laws have stumbled, despite attempts — most recently in 2012 — to make it easier for companies to adjust their workforce to economic cycles.

Italy’s social security and labour taxes are among the highest in Europe. Despite the 2012 reforms, it is still difficult for companies to downsize for economic reasons. Usually companies resort to state-funded furlough schemes in which workers are still employed by the company and receive a salary, paid largely by the state even though they don’t work.

As a result, many companies, subcontract work to tiny firms to increase flexibility because they don’t fall under the strictest of labour rules.